Barry Minkow Essay

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Case 4-6: 1. Yes, I do believe that auditors should be held liable in situations like ZZZZ Best. It is true that ZZZZ Best management worked hard to deceive the auditors. However, the auditors in the ZZZZ Best case failed to maintain their professional skepticism and objectivity. They failed to probe deeper into the company’s operations. In addition, they allowed Minkow to manipulate and steer them away from the truth. As stated in the case, Minkow would become close to the auditors and their families. For example, he would have dinner with individual auditors and their spouses. He would babysit auditors’ children. He would even ask auditors for their personal opinions on his business, so that they would feel important. If auditors started asking too many questions, Minkow would complain and threaten to use a different audit firm. The auditors also gave Minkow notice that they wanted to visit one of his restoration sites. This allowed Minkow and his team to find a building and stage a fake restoration site. The auditors never looked further to confirm that Minkow’s restoration business was real. The point here is that auditors should be held liable when they fail to maintain their required independence and professional skepticism. That is what happened to the Ernst & Whinney auditors in the ZZZZ Best case. They got too close to Minkow and became too dependent on his business. As a result, they allowed themselves to become easy targets for Minkow’s manipulation. The lesson from this case is that auditors must remain objective and independent from audit clients. In addition, auditors must apply professional skepticism throughout an audit engagement. It should be noted that there might be cases where fraud is extremely difficult to detect. For example, with very large companies, it is unlikely that auditors will be able to examine every store, warehouse, or area

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